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China takes steps to save its PV industry (special update)

United States and European Union anti-dumping and countervailing duties on Chinese solar cells have worked. They are putting the screws on the Chinese solar PV industry.

The Chinese government, however, wants to help the Chinese solar PV industry thrive.. It laid out new plans for survival on July 15th.

The goal is three-fold, to: (i) expand the domestic market, (ii) improve technology and (iii) speed up the transformation and upgrade of the industry.

The new goals replace part of the 12th five-year plan for energy development published in January this year.

The government wants PV capacity to grow by roughly 10,000 MW annually between 2013 and 2015. Total installed PV capacity will reach 35,000 MW by 2015, which is 60% more than 21,000 MW in the 5-year plan.

This means the goal for installed PV capacity will increase 175%, from 20,000MW to 35,000MW. With only five months left in 2013, it will be a challenge to achieve the 10,000 MW of capacity growth this year. But, the goal by 2015 will be possible.

Using market mechanisms to promote PV industry growth is consistent with the Chinese Premier’s economics theory.

Construction of PV power plants will be determined based on localized demand needs.

A strong emphasis will be placed on distributed production. Projects will be installed on schools, hospitals and governments buildings. In addition, private developers will be pushed to incorporate PV systems into the design of new buildings in urban and rural areas.

The government expects to create a huge distributed generation market if all these goals are implemented carefully. The hope is that these efforts can offset the effect of anti-dumping and countervailing duties on Chinese PV manufacturers.

At the same time, however, the Chinese government does not want to protect lagging companies with no viable future.

It will create a new testing and certification regime to identify companies that do not deserve support. In addition, Chinese banks will be directed to make loans only to those with proper intellectual property rights, advanced technology (i.e., equipment that is proven to work) and a good reputation.

China also will lift limitations on behind the meter distributed power projects and encourage companies, communities and households to install and use PV power systems. Utilities also will be encouraged to cooperate with their customers that want to install behind the meter PV systems. Utilities will play an important (but yet undefined) role in the investment, construction, operation and maintenance of these projects.

This suggests that the Chinese State Council now approves of a similar model used in Jianxi province.

The central government will consider the expansion of distributed PV systems in a given area when it evaluates local governments and utilities. This will draw attention from the local governments and utilities since achieving high marks from the central government will affect their political lives in the future.

Banks are also encouraged to provide support to the small and middle sized companies and households to build the distributed PV power system. However, Chinese banks may lack the relevant experience. This will mean foreign banks in China may have a head start on local banks to penetrate this market.

The government also will provide a grant for PV produced electricity that will last for 20 years of production. This has the effect of creating an attractive feed-in-tariff. The government has not provided details on the feed-in-tariff’s operations or the amount of government support.

Developers are hoping for 0.45RMB/KW, as they argue that they will lose money by supporting PV if the grant is not above that threshold. The State Grid is expected to be responsible for the distribution of the grant, which also may cause concerns such as payment delays and monopolization enhancement.

In addition to the grant, the government will impose a surcharge on conventional power. The surcharge is one of the two sources of China Renewable Energy Development Fund, the other one is from the government budget. It is expected that the surcharge will be increased from 0.008RMB/KW to 0.016RMB/KW shortly.

The new goals also would encourage companies to find new ways to increase international trade, optimize the rollout of PV development domestically and invest abroad.

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